As details emerge, it looks like the much touted Mortgage Bailout missed the mark. I had high hopes for finally a program that would actually help homeowners that got trapped in high interest mortgages. Not only are just a small percentage of distressed homeowners covered by the bill, it provides reduction of principle which I do not agree with. What many millions of homeowners on the brink of losing their home need is an equitable refinance package that would lower their interest rate, thus lowering their payments. To lower interest rate to current market rates is not asking a lot.
I personally know of a homeowner, single mom, with a high mortgage and a high interest rate of 9%. She has equity in her home but can not get to it due to her now lower income from employment. She can’t sell the house because the lender took back the title. Her lender will not negotiate a lower rate, which would bring her payments to a level she can afford. With several hundred thousand in equity, it looks like the lender would rather foreclose and pocket the money instead of working with the homeowner.
It is not fair for this bill to lower the principle on loans that are under water (borrower owes more than home is worth). What message does that send to the millions of homeowners that are not in default and honoring their commitments? We should not be giving homeowners money because they made a poor financial investment… but we should be helping them out with low interest refinancing so they can stay in their home. You only have a loss on your home if you sell it. It is all just a paper loss up until that point. 9%, 10%, 11% or higher loans are just wrong.
Put that $26 billion homeowner bailout into low interest, no-fee, refinancing. Not principle reduction. Create a sliding scale so the bulk of the money goes to lower income families and not multi-million dollar homes or 2nd or 3rd homes. Taking the rate from 9% to 4% will cut the payment in half. Re-adjust the rate after 5 years to a slightly higher rate tied to prime rate.
Once again, it looks like what started as a good idea is turning into a poorly thought out solution that only benefits a small number of homeowners – including those who purchased multi-million dollar homes.